5 Vital Signs for Your Practice's Health

June 6, 2012
Lucien W. Roberts

Most physicians have a limited amount of time to monitor the fiscal health of their practices. However, it is possible. Here are five quick measures to make the task easier.

Most physicians have a limited amount of time to monitor the fiscal health of their practices. However, it is possible. I use five quick measures to assess how a practice is doing. These five measures - collections, labor cost, new patients, top five CPT codes, and top five referral sources - offer a broad picture of your practice's health. Before reviewing each vital sign in detail, download these two sample spreadsheets to record your own practice data. 

The first step is to track these five measures month-by-month, looking for anomalies and trends, as in the example shown below:

Note that collections fluctuated between $294,000 and $310,000 from January through May, yet they fell to $246,000 in June. New patients were down significantly in May and likely contributed to June's cash-flow shortage. By looking at your practice vitals on a monthly basis, you will recognize such harbingers and adapt.

A second way to use these vital signs is to compare the monthly and year-to-date totals to those for the prior year. This format permits you to do a quick "look back" and see how your practice was doing at the same time last year. In the following example, the year-to-date labor cost as a percentage of practice collections is up from 33.6 percent to 35.2 percent because labor costs have risen more quickly than collections. This may not seem like much, yet any time that labor costs increase without an offsetting increase in collections, your income is going down.

Here are five vital signs that can be tracked quickly to monitor your practice's health:

Vital Sign #1: Collections

Our first vital sign is, quite simply, how much money your practice collects on a monthly basis. This is the sum of monies from insurance companies and patients, regardless of whether the payment is by check, cash, EFT, or credit card. Most established practices rarely have cash flow variances of greater than 10 percent month-to-month. If you observe a large variation or downward trend in your collections, additional investigation into the cause is warranted.

Vital Sign #2: Labor Cost

Your employees likely are your practice's single greatest expense. And while labor cost is a variable expense, you should find that it varies little month to month. For example, an uptick in your labor cost may be attributable to overtime which, paid at time-and-a-half, eats away at your bottom line quickly.

I also recommend looking at labor cost as a percentage of collections. If this percentage increases, it means that you will be taking home less income. Any increase in staffing without an offsetting increase in revenues is reason for concern.

Vital Sign #3: New Patients

The pipeline of every practice, new patients, is easy to measure and track. New patients are a harbinger of revenue-producing services such as procedures, and looking at the number of new patients your practice sees each month gives you a quick feel for the health of your pipeline.

Expect to see some variation month to month, attributable to the number of workdays in each month and also staff vacations; however, it remains an effective gauge for measuring your practice's ongoing performance.

To take this vital sign to another level, you can measure new patients by provider or by service periodically. Each provider should carry her share of the practice's pipeline. Again, a downward trend warrants additional investigation.

Vital Sign #4: Top Five CPT Codes

Tracking the top five CPT codes your practice bills each month may seem simplistic. I like it, though, for both E&M and procedure-driven practices. The simplest way to track them is a raw count of the number of times each code is billed. While this method is effective at showing what your practice does most, it does not recognize the attendant income of each CPT code. Some practices will take this measure a step further and record the charges or receipts for each CPT code. Using dollars is more work, but it offers you a better feel for what activities generate the most income.

Vital Sign #5: Top Five Referral Sources

Surprisingly, most physicians and practices do not have a good feel for their top sources of new patients. In this era of health systems acquiring practices and "minute clinics" siphoning patients, I feel it is more important than ever to know and monitor your new patient pipeline. The quick measure is to list your top five referral sources every month, regardless of whether your practice is primary care or specialty. It permits you to keep your finger on the pulse of your practice.

I suggest you go one step further and look at your top referral sources by service or product line. A neurology practice, for example, should know not only who is referring new patients, but also who is referring patients for EMGs, EEGs, and other in-office tests.

Maintaining your practice's health is critical to your ability to provide good patient care. By taking just a few minutes every month to assess your practice's vital signs, you can keep it in good health.

Lucien W. Roberts, III, MHA, FACMPE, is vice president of Pulse Systems, Inc., and a former practice administrator. For the past 20 years, he has worked in and consulted with physician practices in areas such as compliance, physician compensation, negotiations, strategic planning, and billing/collections. He can be reached at lroberts@pulseinc.com.